First Financial Bancorp.

Good day and welcome to the First Financial Second Quarter 2020 Earnings Conference Call-In Webcast. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Scott Crowley, Corporate Controller. Please go ahead.

Thanks, Alyssa. Good morning, everyone, and thank you for joining us on today's conference call to discuss First Financial Bank Corp's second quarter and year-to-date 2020 financial results. Participating on today's call will be Archie Brown, President and Chief Executive Officer, Jamie Anderson, Chief Financial Officer, and Bill Harrod, Chief Credit Officer. Both the press release we issued yesterday and the accompanying slide presentation are available on our website at www.bankatfirst.com under the Investor Relations section. We'll make reference to the slide contained in the accompanying presentation during today's call. Additionally, please refer to the forward-looking statement disclosure contained in the second quarter 2020 earnings release, as well as our SEC filings, for a full discussion of the company's risk factors. Information we will provide today is accurate as of June 30, 2020, and we will not be updating any forward-looking statements to reflect facts or circumstances after this call. I now turn the call over to R.G. Brown. Thank you, Scott. Good morning, everyone, and thank you for joining us on today's call. Yesterday afternoon, we announced our financial results for the second quarter. We're very pleased with our performance, especially when considering the unique circumstances in which we were operating related to COVID-19. Consistent with the broader industry, our results continue to be substantially influenced by the pandemic across net interest income, key income, and most significantly, provision expense. Our second quarter performance demonstrated continued strength and resilience in our businesses despite the challenging backdrop and marked our 119th consecutive quarter of profitability. Highlights included adjusted earnings of $0.40 per share, a 1% return on average assets, a 13.47% return on average tangible common equity, and a 50% efficiency ratio when adjusted to remove non-occurring items. Second quarter was our highest core fee income quarter on record. Our mortgage division had a sensational quarter as the hard work of our team combined with historic low interest rates to drive an almost 500% increase in mortgage banking revenue to $16.7 million. Core banking trends for loans and deposits were significantly influenced by the Paycheck Protection Program. During the quarter, we secured SBA approval $113 million. Additionally, increased liquidity in the financial system across both businesses and consumer client segments contributed to the strong deposit growth. Our banking teams are seeing a return to sales momentum across many of our business lines. The mortgage team continues to see a very high volume of refinances and purchases with rates at an all-time low. Sales activity also has been strong for checking growth, consumer loan originations, and wealth. All teams are embracing the virtual remote solutions leveraged to a greater degree during the height of the COVID pandemic. These are all encouraging signs of how our new normal is no longer restraining activity. Expenses were lower in the quarter as we limited discretionary spending and implemented additional hiring controls. Credit trends remain stable. However, forecasted credit deterioration over the latter part of the year drove elevated provision levels in the quarter. We are pleased and appreciative of the incredible work of our associates during the quarter. As can be seen on slide 19, our guiding principles in managing this crisis continue to be prioritizing associated client safety, preserving the continuity of our business, assisting our communities, and ensuring the safety and soundness of our company. Over the last several months, we successfully implemented our pandemic management plan with more than 50% of our associates working remotely and our branches operating with closed lobbies for most of the quarter. We promptly reviewed our client service model and shifted to utilizing technology in new and innovative ways. Our associates went above and beyond to provide essential services and assist customers at critical moments. Our teams work evenings and weekends processing and funding $913 million in PPP loans, customer deferrals totaling over $2 billion in loan balances, and historic levels of fee waivers in mortgage applications. At this time, over 60% of our Banking Center lobbies are fully open, with the remainder servicing clients by appointment. Physical staffing levels in our office buildings is currently limited to 25% of normal capacity, mostly on a volunteer basis, with the remainder of the staff continuing to work remotely. We continually monitor conditions in our markets and banking centers, in addition to guidance provided by local and state governments with regard to safely returning to the workplace and opening our branch locations to customers. Overall, I continue to be extremely pleased with our ability to quickly adapt to the challenging environment and function at a high level. I'll now turn the call over to Jamie to discuss the details of our second quarter results. And then after Jamie's discussion, I'll wrap up with some comments on the specific areas of focus within our loan portfolio and provide some forward-looking commentary. Jamie. Thank you, R.T., and good morning, everyone.

Slides four and five provide a summary of our second quarter 2020 performance. Overall, we were pleased with second quarter results. as the company's operating performance remained solid with elevated fee income and an efficiency ratio that surpassed our expectations. Although we were encouraged by our relative performance, the pandemic continued to produce meaningful headwinds. Despite stable credit metrics, we recorded $20.2 million of provision expense during the quarter, and we believe our current reserve positions us to effectively manage credit deterioration in the back half of the year. Our capital remains strong and regulatory ratios remain in excess of both internal and regulatory targets. We believe that our balance sheet is well positioned and our core fundamentals should allow us to maintain these levels for the foreseeable future. As expected, our net interest margin declined 33 basis points on an FTE basis compared to the prior quarter. as asset yields were negatively impacted by lower interest rates. However, we were able to partially offset the impact by prudently managing funding costs. Fee income was the highlight of the quarter and one of the main drivers of our financial results. Mortgage banking was particularly strong, increasing $13.8 million compared to the first quarter, while foreign exchange, wealth management, and client derivative income were in line with our expectations. This elevated fee income, along with a relatively flat expense base, resulted in another quarter with a sub-60% efficiency ratio. We also believe we are well positioned from a regulatory capital standpoint, as both total and Tier 1 capital ratios improved on a linked quarter basis. Total capital increased 159 basis points, bolstered by the $150 million sub-debt issuance at the beginning of the quarter. Additionally, our tangible common equity ratio declined 16 basis points in the second quarter. However, the increase in assets due to PPP loans accounted for 53 basis points of deterioration. And absent this impact, TCE expanded 37 basis points during the period to 8.62%. Slide six reconciles our gap earnings to adjusted earnings, highlighting items that we believe are important to understanding our quarterly performance. Adjusted net income was $39 million or 40 cents per share for the quarter, which excludes 700,000 of COVID-19 related costs and $1.5 million of other non-recurring items, such as branch consolidation costs. As shown on slide seven, These adjusted earnings equate to a return on average assets of 1% and a return on average tangible common equity of 13.5%. Our 56.1% adjusted efficiency ratio remains strong and reflects our diligent approach to expense management. Turning to slides 8 and 9, net interest margin on a fully tax-equivalent basis was 3.44% for the second quarter. The 33 basis point decline was primarily related to lower asset yields, which were impacted by the full quarter of lower interest rates and the normalization of LIBOR. Asset yields and mix negatively impacted the net interest margin by 57 basis points during the quarter due to the lower rates. This was partially offset by lower funding costs, which positively impacted the margin by 26 basis points during the quarter. In addition, it's worth noting that our participation in the Paycheck Protection Program resulted in three basis points of margin dilution during the period. The impact of the recent Fed actions are further shown on slide 9, as declining interest rates caused the yield on loans to decline by 79 basis points, while the investment yield dropped seven basis points due to lower reinvestment rates. In response to these declining yields, we aggressively lowered our cost of deposits 24 basis points during the quarter. Slide 10 depicts our current loan mix and balance changes compared to the linked quarter. End of period loan balances increased $874 million, which was primarily driven by PPP loans. The remainder of the portfolio was relatively unchanged from the first quarter. Archie will provide further commentary regarding particular areas of focus in the loan portfolio later in the presentation. Slide 11 shows the mix of our deposit base, as well as a progression of average deposits from the linked quarter. In total, average deposit balances grew $1.5 billion during the second quarter, driven by large increases in non-interest-bearing deposits and brokered CDs. All other categories of deposits grew as well, with the exception of higher-cost retail CDs. We attribute the majority of our deposit growth to customers retaining stimulus checks and PPP funding, as well as an increase in the consumer savings rate. As I previously mentioned, we were encouraged with our ability to successfully manage deposit costs, resulting in a 24 basis point reduction to 40 basis points. We will continue to monitor deposit pricing over the coming months and make any necessary adjustments based on market conditions and our funding needs. Slide 12 highlights our non-interest income for the quarter. Second quarter fee income was our highest since 2011 and was driven by a significant increase in mortgage banking income, while foreign exchange income, wealth management fees, and client derivative incomes all met or surpassed internal expectations. Non-interest expense for the quarter is shown on slide 13. Overall, expenses were relatively flat compared to the first quarter and were in line with our expectations. Non-interest expenses included $700,000 of COVID-19 related costs and approximately $1.5 million of other costs not expected to recur, such as branch consolidation costs. In addition, we incurred $800,000 of incremental expenses related to the Paycheck Protection Program during the quarter. Next, I'll turn your attention to slide 14, which discusses our allowance for credit losses and related provision expense for the quarter. Our second quarter model resulted in total ACL, which includes both funded and unfunded reserves of $175 million, and $20 million in total provision for credit losses. The model utilized the Moody's baseline economic forecast released at the end of June. Similar to the first quarter, it's worth noting that the majority of provision expense related to the expected economic impact from COVID-19. As shown on slide 15, credit metrics were once again fairly benign, as we had $3.1 million of net charge-off for the period and relatively flat non-performing and classified asset levels. Net charge-offs were 12 basis points as a percentage of loans, which is relatively in line with recent historic levels, despite the slight increase compared to the first quarter when we had net recoveries. While our credit metrics don't reflect much stress at the current time, we do expect some deterioration in the back half of the year, as deferrals expire and we continue to manage the pandemic. As such, we believe our current reserve levels adequately position the balance sheet based on the current economic models. Finally, as shown on slides 16 and 17, capital ratios remain strong and are in excess of regulatory minimums. Total and Tier 1 capital ratios each increase during the second quarter and all ratios continue to exceed internal targets. Our tangible common equity ratio declined by 16 basis points during the period. However, as I previously mentioned, this was driven by 53 basis points of dilution from PPP loans in the denominator. We do not foresee any near-term changes to the common dividend. However, we will continue to evaluate various capital actions as the economic impact of the COVID pandemic develops. I'll now turn it back over to Archie for commentary related to particular areas of focus and our outlook in light of the current operating environment. Archie.